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Open House

Rescue or Rip-Off; Women and Investing; Planning for Baby

Aired August 04, 2007 - 09:31   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

GERRI WILLIS, HOST: Hello. I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.
Disturbing news for homeowners this week. A report shows there's no relief in sight from foreclosures.

Plus, your home isn't the only big investment you'll ever make. Your children are as well. I'll show you how to prepare your wallet before you start a family.

And how to get the most out of those rewards cards.

But back to our big story.

I first told you about the impending mortgage meltdown last year. And a new report out this week shows that since our first report, foreclosures are up 58 percent and could top two million this year alone.

Imagine losing your family's home. What would you be willing to do to save it?

Here's one family's story.

(BEGIN VIDEOTAPE)

WILLIS (voice over): Rhonda Schnitzler (ph) and Hank Gribensk love their home in Loxahatchee, Florida. They hope to pass it on to their children one day, but that day may not come.

HANK GRIBENSK, DEALING WITH FORECLOSURE: It's a worry every day.

WILLIS (on camera): Rhonda and Hank fell behind on their monthly mortgage payments and struggled to keep their heads above water. Then they found what they thought would be the perfect solution in an unlikely place, their mailbox.

GRIBENSK: Countrywide already filed for foreclosure, so that made it public record. As soon as that happened, flyers came in from everywhere. "Stop foreclosure. "We can help." And then the flier from the Florida Housing Council came, and that was the best-written flyer out of all of them.

WILLIS: How did they come off to you in their flyer?

GRIBENSK: Well, as soon as it said Florida Housing Council, I associated that with Florida. WILLIS: It was safe.

GRIBENSK: Right. And then in the flyer, it said through federal guidelines. So with that, I figured, OK, this is something government-wise that will help. WILLIS (voice over): To Jack Moussa, the company's founder and managing director, the name isn't misleading. In fact, he says it's straightforward.

JACK MOUSSA, FLORIDA HOUSING COUNCIL: It's not a government agency. There's Florida roofing. Does that make them a Florida state company? It's just a name.

WILLIS (on camera): And how does it help people?

MOUSSA: If there is a need for financial restructuring, debt management, we would be called upon, and we provide a service.

WILLIS (voice over): As promised, FHC stopped the foreclosure process, but Rhonda and Hank paid a price. They became renters in their own home.

GRIBENSK: We got a letter which stated that we were now renters and that we were so far behind in the rent that they were going to evict us if we didn't come up with ...

WILLIS (on camera): Wait a minute. So you get a letter in the mail that you are now renters?

GRIBENSK: Right.

UNIDENTIFIED FEMALE: Yes.

WILLIS: And what was that like?

UNIDENTIFIED FEMALE: You wouldn't want to be in this house.

GRIBENSK: We were not happy.

UNIDENTIFIED FEMALE: No.

GRIBENSK: We were not happy when we got that letter.

UNIDENTIFIED FEMALE: I was crying hysterically.

WILLIS (voice over): The tears and the heartache could have been avoided if the couple had read and understood the fine print of the contract they entered into with FHC.

GRIBENSK: He didn't say anything about signing over the house to him, deed-wise. All we were doing was signing a contract to hire his company to help us out of foreclosure proceedings. That was it.

WILLIS: In fact, that wasn't it. Not even close. What they had signed was an agreement to put their home into a trust and to make payments through FHC for one year, after which they had the option to repurchase their home. DAVID SILVERSTONE, COUPLE'S ATTORNEY: It said that, in order to get their house back after a year, they had to repay a $26,000 fee, plus 50 percent of the equity in the home. WILLIS: According to the lawsuit Silverstone filed on behalf of the couple, this would give FHC a 300 percent return on their initial investment.

SILVERSTONE: We're saying they violated Florida law. We have an Unfair and Deceptive Trade Practices Act. They violated Federal Truth in Lending laws. We have a usury law here in Florida. Those are the main statutes they're violating.

WILLIS: This isn't the first time that FHC has been sued for the way it does business.

(on camera): Why are so many people suing you and saying your action is unfair and misrepresents your intent?

MOUSSA: Every one of these clients that have sued, they have lived through the terms of our agreement in full, which -- during which time we have subsidized their payments. Every agreement is only entitled to one year. After the year expires and we called upon them to come and resolve the interest in the trust, they have come up with suits that this is illegal and it's coercive, and we didn't know what we did.

ADAM SKOLNIK, ATTORNEY FOR FLORIDA HOUSING COUNCIL: The language is written in plain English. There's no "legalese" in any of the documents. It's actually written on what's been known as a fifth grade level.

WILLIS (voice over): Here's an excerpt from the contract. "For the purpose of acquiring beneficial interest in a title-holding land trust in which a third party corporate trustee shall hold title to the subject trust property," et cetera.

For now, Rhonda and Hank are still in their home. Their lawyer is trying to get the transaction with FHC declared null and void and unenforceable.

GRIBENSK: I get angry. But we'll make it.

(END VIDEOTAPE)

WILLIS: That is a sad story.

The jury is still out in this case, but if you are worried about foreclosure today, there are ways you can protect yourself.

First off, contact your lender if you fear you're headed for trouble. Look, lenders don't want to own your home. And ask for a lower interest rate or get your payments stretched out over a longer period of time. If you can find a buyer for your home, the bank may be willing to work with you.

And be persistent on the phone. If it you're not getting through to the right person, well, it could be because you're connected to a so-called loan servicer rather than the actual mortgage loan owner.

And don't allow yourself to be transferred to the collections department. Ask for the loss mitigation department instead. They are the ones that can help you out.

For more information on how to avoid foreclosure, call the Department of Housing and Urban Development at 1-800-569-4287.

Coming up on OPEN HOUSE, how getting together with friends and family could get you on the fast track to investment success.

Plus, they promise everything from airline miles to cash. We'll show you which credit cards are the most rewarding.

Then, is your baby budget in good shape? What you need to know before starting a family.

But first, how to teach your children about money in this week's "Tip of the Day".

(BEGIN VIDEOTAPE)

WILLIS: Teach your kids about money now. It could pay off down the road. Once they learn how money works, they'll be more careful spending it.

Sit down and do some budgeting together. You probably don't want to reveal all of your monthly expenses, but how about planning a trip to the grocery store to demonstrate financial restraint?

Giving your kids an allowance will show them how to save up so they can afford the bigger things and make them do some chores to earn the dough.

That's your "Tip of the Day".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Several studies show women are actually better investors than men. That's right. So, why are so many of us still not in on the action?

Here to talk about it is Karin Housley. She's the founder of Chicks Laying Nest Eggs. It's an investment club geared towards women. And she joins us from Minneapolis, along with another Chicks member, Jana Smith.

Welcome to you both.

KARIN HOUSLEY, FOUNDER, CHICKS LAYING NEST EGGS: Thank you.

JANA SMITH, CHICKS INVESTMENT CLUB: Thank you.

WILLIS: All right, Karin. I'm going to start with you. So why did you start the club?

HOUSLEY: I started it. My husband and I had our fourth child. We were living back in Washington, D.C., at the time, and I -- you know when you're up in the middle of the night nursing your baby, and all of a sudden you think to yourself, oh, my gosh, this is my fourth child. How in the heck am I going to send my four kids to college? What are our investments doing?

So, the next morning I got up and I called our financial planner. And he said, "Don't you worry about it. You just take care of those babies and your husband. Everything is fine."

WILLIS: Oh.

HOUSLEY: Yes, right.

WILLIS: Well, that's sort of insulting, isn't it, just a little bit?

HOUSLEY: Just -- well, just a little bit. You don't say that stuff to me.

So I got some books that were written by Warren Buffett, Peter Lynch, The Motly Fool, Suze Orman. Read all of these books, but I still didn't understand it. I still couldn't -- I'm one of those people to actually have to visit a country to, like, really actually get it. So I knew I had to actually invest in the stock market to understand it.

WILLIS: And, well, you guys did, right.

So, Jana, I have to ask you, because the hard part is picking the stocks. I can't imagine doing it as a team sport. How do you pick them?

SMITH: Well, it's a great way we do it. We -- there's eight of us in the club, and we each come up with a stock that we want to -- that we're interested in, whether it's something that's in our refrigerator, whether it's clothes that we wear. We each choose it, we research it, then we bring it to the club for a meeting.

And we look at it and we really sit there and look at the gross margins, the net margins, and decide whether it's something we want to invest in. And then...

WILLIS: Jana, let me interrupt you for just a second.

SMITH: Sure.

WILLIS: Because we're actually showing some of the stocks that you invest in. And you were talking about buy what you know.

SMITH: Yes.

WILLIS: Here's Whole Foods. Here's Walgreen, eBay. OK, I'm not cool enough to know what Volcom is. SMITH: Volcom is a cool kids wear -- that surfer gear. It was Karin's kids that actually were the ones that tipped her off. So everyone had Volcom. If you ask anyone at 17 to 24...

HOUSLEY: It's Volcom.

SMITH: Volcom? OK. I don't even now how to pronounce it. I know. I'm not that cool.

HOUSLEY: My daughter, she's going to be a senior in high school, and she came to me this fall and said she was in charge of her stock market team, which I had no idea she was paying attention to what I was doing.

And she said, "And we bought Volcom." And I said, "What the heck is Volcom?" And she goes, "I'm wearing it."

WILLIS: Ah.

HOUSLEY: So she -- and her little team ended up second in the state in the stock market contest. And so...

WILLIS: Wow.

HOUSLEY: ... we bought it at the Chicks, and it's up 89 percent since September.

WILLIS: Wow.

Well, you know, I think what's interesting about what you guys have done, you guys have seen, I think, what, 80 percent gains in eight years in your investments.

You know, Jana, tell me, how much money did you guys put in? And is this all your investment money that you're using?

SMITH: This is all of our investment money. We put in -- we put in $50 a month. And we started that out back in 1998. So we put $50 in a month, and then we invest it every three months. We're almost at $10,000.

WILLIS: You know, women are better investors, aren't they? Seriously.

Karin, tell me, what advice do you have for people out there who want to form one of these investment clubs? Because it just seems to me that, at the end of the day, you know, you might argue a little bit. Right?

SMITH: We argue a lot. We argue a lot.

HOUSLEY: No, no, no, no, no. First, she says women are better investors, and then we argue a lot. No, no, no. No, we don't argue at all.

I think advice for women out there who do -- who are interested in maybe getting to know or learn a little bit about the stock market would be to go to our Web site, chickslayingnesteggs.com. And we're having an investment seminar, a webinar (ph) on there right now that will teach women exactly what we've spent the last 10 years learning, which was, it's so, so simple and it's not overwhelming. And to learn what a good investment philosophy is, how did Warren Buffett do it, how they can start their own club, what's a good size to have.

WILLIS: Great.

HOUSLEY: All of that is on the chickslayingnesteggs.com Web site.

WILLIS: Hey Karin and Jana, thank you so much for being with us today. Really appreciate it.

HOUSLEY: Thanks, Gerri.

SMITH: Hey, Gerri, we have one quick question for you.

WILLIS: Sure.

SMITH: Do you do your own investing on your own?

WILLIS: Absolutely.

SMITH: Excellent. We love you. You're a chick.

HOUSLEY: And better than a man.

WILLIS: Do I make membership in your club? I hope so.

HOUSLEY: Yes, you're in.

SMITH: You're in.

WILLIS: Great. Thanks a bunch, guys.

SMITH: OK. Thank you.

HOUSLEY: Thanks. Bye-bye.

WILLIS: Still ahead on OPEN HOUSE, starting a family is exciting, but it can cost a lot of money. We'll show you how to baby- proof your finances.

Plus, with so many rewards cards out there, we'll show you which ones give you the best returns.

Stay with us if you care about your money.

(COMMERCIAL BREAK)

WILLIS: Having a baby can be the happiest time in a couple's life, but also one of the most expensive. A recent study puts the number at over $260,000 to raise a child to age 17.

Carley Roney is editor-in-chief of thenestbaby.com. And she is here to tell us how to baby-proof our budget.

Welcome, Carly.

CARLEY RONEY, EDITOR-IN-CHIEF, THENESTBABY.COM: Thank you so much for having me.

WILLIS: You know, I read somewhere that you can spend $9,000 to $11,000 in the first year just on the basics for the baby. I mean, it's amazing. You drop out that second income, it's very expensive.

RONEY: It is extremely expensive. We were doing research for our netbaby.com launch, and just sort of adding together some of the basics, and you go right in.

Let's start with the kind of planning for the actual birth and delivery. If you've got insurance, great. But if you don't, $8,000 to $10,000 right there.

WILLIS: Wow.

RONEY: You want to make sure beforehand that you have disability insurance as well so that, when you do have the baby, you only have reduced lost wages for that first six weeks.

WILLIS: Right.

RONEY: But you have to plan for the fact that, if you're going to take the full three months maternity leave, that you're calculating into your budget for baby that second six weeks of lost wages. You know, for an average $50,000 a year employee, that's $8,400 that's going to sort of be out of your budget for that year.

WILLIS: Wow. That's a lot of money.

RONEY: It is a lot of money.

RONEY: And, of course, you have to have life insurance. If you're going to have a child, baby, that second six weeks of lost wages. For an average 50,000 dhs a year employee, that's $8,400 that's going to be out of your budget for thattier.

That's a lot of money. And, of course, you have to have life insurance. I mean, if you're going to have a child, you have to guarantee that the child is going to have money to live on if you're not there.

RONEY: Fortunately, the life insurance is sort of the least end of the expense. You know, you can get a couple hundred dollars a year, you can get life insurance that will help take care of your children. But you need to do estate planning. That can be anywhere from $2,000 to $4,000 that you would want to, you know, be investing in to make sure that the guardianship was taken care of for that child.

WILLIS: So, obviously, insurance is a very big piece of the puzzle. RONEY: Yes.

WILLIS: Maternity leave, though, you know, not everybody knows the details of this. And you can really lose a lot of money if you're not careful.

RONEY: You need to really investigate with your employer right off the bat, even when you're considering getting pregnant, what their policies are. Are you covered with disability insurance? What is their maternity leave policy?

Some people do have paid maternity leave, but very, very few. Chances are they will give you that, you know, up to three months, but you will be taking the second six weeks at absolutely no pay at all. And so calculate it in.

WILLIS: And just at the moment when you need that money most, you know, it's very frustrating, I'm sure, for new families out there.

Let's talk about setting up your home for baby. People spend so much money doing this.

RONEY: They do. But even with the most basic expenses -- like, it's $2,000 just for the basics, to get a crib, nursery, bedding in your home. To get, you know, a changing table, to get a rocking chair, the basic things. And that doesn't count if you have to get renovations or you want to paint or get fancy furnishings.

WILLIS: Right.

RONEY: Also diapers, $1,000 a year right there. They're 25 cents a piece. Formula, if you do not breast feed, there's an additional $2,000 right there. And then baby food for that second portion of the year where they start to eat food is another, you know, $500 to $1,000.

WILLIS: You say delay saving for college. I'm surprised.

RONEY: Well, it's very, very hard in that first period, where particularly -- you know, our site is devoted to first-time parents. You're young. You're getting your career going. If you've got the money to put away, please do, because, you know, the Bright Start savings programs, things like that are great, because they're tax incentives to put that money away. But it is very hard for your average couple to even get to the point of savings when they have a reduced income for that year.

WILLIS: OK.

RONEY: As well as, you know, all the additional expenses. So I say wait until the end of that intense child care phase is the best time to sort of strategize for this. I'm sure many financial planners would say otherwise, but I just think it's unrealistic for most couples to consider saving.

WILLIS: I'm sure a lot of people feel the same way. Carley, thanks for joining us today.

And I should tell you, her Web site is thenestbaby.com.

Thank you so much.

RONEY: Thank you so much for having me.

WILLIS: As always, if you have an idea on how to save money, send us an e-mail to openhouse@cnn.com. And if you want to check out this project savings again, check out our Web site, cnn.com/openhouse.

Coming up, credit cards. How rewarding are they? From airlines and hotel miles to cash, we'll show you which give us the most payback.

But first, your "Local Lowdown".

(BEGIN VIDEOTAPE)

WILLIS (voice over): Happening this weekend from the Ohio- Michigan border, all the way down to Gadsden, Alabama, the 20th annual World's Longest Yard Sale. The US 127 corridor sale started back in 1987 as a promotion to get more folks on the region's back roads. And it worked.

Hundreds of thousands of visitors are expected this year to jam some 630 miles of roadway, traversing five states. Along the way, lawns are transformed into outdoor showrooms, and open fields are converted into booths for professional vendors. And the buyers, well, they flock in from all across the country and from overseas as well.

That's your "Local Lowdown".

(COMMERCIAL BREAK)

WILLIS: Twenty-three million, that is a whole lot of frequent flyer miles. You know they're everywhere -- credit card offers, in the mail, online, on TV. You see them all the time. And they usually come with incentives ranging from cash back to free airline miles.

With all those rewards cards out there, how do you know which ones are really worth it? Here to break it down is Adam Levin. He's with credit.com in San Francisco.

Hey, Adam. Thanks for being with us.

ADAM LEVIN, CREDIT.COM: Hey, Gerri. How are you?

WILLIS: I'm great.

Let's start by talking about how you analyze these cards. APR, interest rate, what are you looking for?

LEVIN: The lowest possible interest rate you can get. Some cases, some of these cards have zero percent for the first year, zero percent for six months. And relatively low interest rates thereafter.

WILLIS: OK. That's one of the big issues with these cards, though, right? Because sometimes the interest rates can be very high.

LEVIN: No, they can be high. That's how they kind of get you. They excite you with a reward, and they nail you with the interest rate. Yes.

WILLIS: So watch out for that. OK.

There are other downsides, though. Sometimes you run into fees or restrictions on using these goodies. Tell us what to look out for.

LEVIN: Well, you have to watch out for the sort of hidden fees, late fees, overcharge fees, what the numbers are they charge on that, what kind of balances they want you to carry.

You need to also watch out for whether there are blackout dates on travel cards. And also, are these rewards that you really want to use?

WILLIS: Right. That's a great question.

Let's go to your list of cards, because you've actually been kind enough to come up with a list of the best ones, starting with Miles by Discover.

Now, why do you like this card?

LEVIN: Well, first of all, Discover has excellent customer service. You get wonderful and liberal miles benefits. And on top of which, you get almost unrestricted access to travel agents and airlines, travel sites.

WILLIS: Wow. Awesome.

So, what about savings rewards cards? You hear a lot about this. Is this a good idea, and do you have a pick in the category?

LEVIN: There is. One from American Express. Relatively low APR.

You get a $50 boost when you start. And you even get a percentage of your purchases that go into a savings account right now yielding 5 percent.

WILLIS: Wow.

Let's talk about your favorite pick in the category. Which is your favorite rewards card?

LEVIN: Well, I -- just -- I like the Citi mtvU student card. This is a card where you actually -- you get -- you get benefits, rewards for good grades, for paying on time. You get to redeem rewards for MTV-related events, and you pick up rewards for going to the bookstore, going to the movie theater, going to restaurants. WILLIS: All right, parents out there. If you're looking for a card for your kid, that's the one.

Of course, Adam, you're not saying here that you should go out and spend a ton of dough to get rewards, right?

LEVIN: No, you don't want to do that, because you don't want to sort of put yourself in the poor house in order to benefit from rewards for furnishings you buy for your house. Remember, rewards are perks. They're not privileges. They can be taken away, changed, almost without -- with almost a moment's notice. And it's one of those things where you just have to be smart about it.

Get the reward you want and then make sure that you're not overpaying for the reward, and keep your spending limits as low as possible. You need to keep the amount of credit you use to 10 percent.

WILLIS: All right. OK.

Adam, thank you for that. We appreciate your help.

LEVIN: A pleasure.

WILLIS: As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week, right here on CNN. And you can catch us on Headline News every Saturday and Sunday at 3:30 p.m. Eastern Time.

Don't go anywhere. Your top stories are next in the "CNN NEWSROOM".

Have a great weekend.

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